When John Maynard Keynes, the renowned 20th century English economist and philosopher, managed the King’s College, Cambridge endowment fund, he was ahead of his time as he diversified out of property into stocks, bonds and currencies. His bold actions sought to maximise the fund’s returns while mitigating risk.
As such, he was one of the forefathers of contemporary asset management – a term that simply means the management of assets or investments. Broadly speaking, asset management firms set out to manage investment portfolios for their clients that will generate returns of more than inflation while minimizing the chance of losses. The best of them are also innovative.
As a private bank, Brown Shipley seeks to be at the forefront of asset management. How we exercise our capabilities depends on you. Our first step is always to get a thorough understanding of your goals for your investment portfolio. After that, we build a resilient portfolio for you that’s designed for the full range of market conditions.
It’s a fundamental principle of asset management that the potential for return (capital gains and income) increases with the level of risk taken. Therefore, so do the potential losses.
Our Client Advisors’ first job is to make sure they assess your investment preferences, personal circumstances, short-term and longer-term objectives, your capacity for loss and your appetite for taking risk. Once this is complete, we identify the investment profile that best suits you from our model range. This includes five investment/risk profiles: cautious, income, balanced, growth and dynamic.
Your investment profile allows us to provide recommendations tailored to your objectives, taking into account everything we have learned about you, your aspirations and your risk profile.
Another celebrity of the investment world, US economist and Nobel Laureate Harry Markowitz, is credited with describing diversification as being the “only free lunch in investing”. By that he meant spreading a portfolio across a range of asset class and securities mitigates risk, or cuts the chance of losses, without sacrificing the potential for returns.
He pioneered the Modern Portfolio Theory, introduced in 1952, which is a mathematical framework for creating a portfolio of assets in a way that maximises the expected return for a given level of risk. While the practicality of MPT in the real world of investing has attracted some criticism, the broad principle of diversifying risk is widely respected.
Beyond diversification, risk can be managed by focusing on different types of investment. That’s why our five investment/risk profiles each target different levels of risk and return. In theory, the risk to capital and level of short-term volatility increases through each of the profiles – as does the potential for capital appreciation over the investment time horizon.
For example, if you select a balanced investment profile, 50-75% of your investment portfolio should always be in shares. Your average long-term strategic asset allocation is generally somewhere in the middle of this pre-determined range, with the balance in bonds, alternative investments and cash. However, we have the flexibility to fine tune this, depending on your needs or if our analysts believe a change in investment conditions warrants doing so.
Financial markets are constantly evolving and investment strategies need to be adjusted accordingly to make portfolios resilient. That’s why we build your portfolio with a wide range of asset classes, including alternatives like commodities, liquid hedge funds and, when client circumstances permit we use structured products and private equity to improve diversification, reduce risk and potentially increase returns.
To give an example of how markets are changing, portfolios used to be mainly diversified between stocks and bonds. That was because their respective prices typically moved in opposite directions. However, during bonds’ 2022 bear market they fell sharply in price after being significantly over-valued beforehand. Since then, bond prices have tended to be more correlated with stocks, so their risk-reducing qualities in a diversified portfolio have diminished.
This ongoing evolution makes it key to have first-class asset management capabilities. Through our parent company, Quintet, we have partnered with Blackrock, the world’s largest asset management group. This gives us access to an expanded research capability, state-of-the-art investment tools (Alladin), and innovative products and solutions. What’s more, it puts us at the forefront of asset management innovation.
In changing times, it’s important to blend the fundamental principles of asset management with this ongoing innovation. Our investment approach does just this while leveraging Quintet group’s scale to deliver robust investment outcomes.
Secure your future. Talk to us about how to craft resilient investment portfolios that match asset management innovation with your appetite for risk and reward.
Get in touch and arrange a call with one of our Client Advisors.
Important Information
Information correct as of 9 October 2024.
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